Money + Happiness = The "Focusing Illusion" (And Jackson Life Update)

What does the scientific literature say about happiness and income?

We have a burning desire for more income because we over-predict its impact on our happiness.

That’s because when we are asked to consider the impact of one thing (i.e. money) on our happiness, we tend to overstate its importance. This is called the focusing illusion. We also overestimate the impact of money because changes (note that word) in income elicit an immediate emotional response. But the long-term effects on happiness are minimal.

Today’s practical lesson from the science of happiness is from “Would You Be Happier If You Were Richer? A Focusing Illusion” by Kahneman, Krueger, Schkade, Schwarz, and Stone. Read the full research paper here.

But first — I wanted to share a fun life update (better late than never).

I’ve retired from the corporate world to be a full-time happiness nerd. In the last 2 months I’ve hosted two trainings for business leaders (like GCI Companies), spoken at the University of Alabama, spoken at 4 conferences, and started a 2 year culture change project with a branch of the US Army National Guard.

Back to our lesson…

Why is it that over the last four decades GDP per capita has increased across the world, yet happiness and wellbeing have remained largely unchanged?

The Japanese, for instance, have seen a 5x multiple in household income. But there was no effect on happiness. The answer may lie in the focusing illusion…

The focusing illusion occurs when we’re asked to assess the impact of one specific thing on our wellbeing. When we’re focused on it, we tend to exaggerate its importance. Here’s an experimental example from another paper by Strack, Martin, and Schwarz.

When college students were asked about their happiness levels and about how many dates they had been on in the last month, there was essentially no correlation. When the questions were reversed, (1) dating life then (2) happiness level, there was a 0.66 correlation.

When we call attention to a certain area (in this case dating) we tend to construct our life assessments around that.

The same occurs with money. We don’t know our happiness level like we do our height and weight. So when we’re prompted to give an assessment we tend to base it off of whatever aspects of life are top of mind. So often income becomes a useful benchmark.

Further evidence of the focusing illusion at work with money and happiness comes from the fact that across various studies, experienced happiness (i.e. emotional state) is far less correlated with money than life satisfaction is. For instance, if we measure happiness via momentary emotional states averaged over the course of several days it it will show a lower correlation with income than if we measure it by asking people how satisfied they are with their lives.

In other words – income doesn’t really change how we feel. It doesn’t make us much happier day to day. It just serves as a metric or benchmark to use when we try to rate our lives on a scale. In a culture so focused on earning, it’s no wonder that this variable is so overstated in our picture of happiness.

The truth is “subjective wellbeing is connected to how people spend their time.” And “as income rises, people’s time use does not appear to shift toward activities that are associated with improved affect [mood].”

The critical risk here is misallocating time. If we accept things that rob happiness (like long commutes) and sacrifice things that bring happiness (time to socialize) in order to earn more money, we end up as yet another victim of the focusing illusion.

So choose time, not money. Money is not as important as we think.

Your happiness nerd,

Jackson